Introduction
Gold Hitting All-Time High in August: What’s Driving the Surge?
Gold prices continued to soar in August, closing the month at a notable 3.6 per cent gain, reaching an all-time high of USD 887.98 per 10 grams. As the precious metal’s value increases, investors and financial experts are left wondering what’s behind this impressive surge. In this article, we’ll delve into the factors driving gold’s upward trend and explore the implications for the global economy.
Gold’s Impressive Run in August
In August 2024, gold prices continued their remarkable ascent, reaching a new all-time high on August 20. The metal’s value increased by 3.6 per cent, closing the month at USD 887.98 per 10 grams, according to the World Gold Council (WGC).
Key Drivers of Gold’s Rise
So, what’s behind gold’s impressive run? According to the Gold Return Attribution Model (GRAM), the primary driver of gold’s ascent was a substantial drop in the US dollar. As the dollar weakened, investors turned to gold as a safe-haven asset. Additionally, a decrease in 10-year Treasury yields, following the Federal Reserve’s signals of potential rate cuts, also contributed to gold’s rise.
India’s Reduced Import Duties
Another significant factor contributing to gold’s surge is India’s reduction of import duties on gold, effective from late July. This policy change has led to a surge in gold demand across the country, with reports indicating a strong uptick in buying interest from both jewelry retailers and consumers.
Global ETFs and Options Markets
The global physically-backed gold ETFs saw their inflow streak extend to four months, with Western funds contributing the majority of the flows. Meanwhile, gold options spreading positions have surged to multi-year highs, reflecting a market preoccupied with both a potential rate-cutting cycle and election outcomes.
Macro-Economic Environment
The current macroeconomic environment is characterized by a mix of contradictory economic data. GDP growth remains steady at 2.5 per cent, with composite PMIs in positive territory. However, investor behavior has shifted towards options markets, with elevated flows into equity options surpassing previous highs.
Frequently Asked Questions
What’s driving gold’s impressive run in August?
Gold’s rise is primarily driven by a substantial drop in the US dollar, a decrease in 10-year Treasury yields, and India’s reduction of import duties on gold.
What’s the impact of the Federal Reserve’s signals on gold prices?
The Federal Reserve’s signals of potential rate cuts have contributed to gold’s rise, as investors turn to gold as a safe-haven asset.
How is India’s reduced import duty affecting gold demand?
India’s reduced import duty on gold has led to a surge in gold demand across the country, with reports indicating a strong uptick in buying interest from both jewelry retailers and consumers.
What’s the trend in global ETFs and options markets?
Global physically-backed gold ETFs saw their inflow streak extend to four months, while gold options spreading positions have surged to multi-year highs.
What’s the current macro-economic environment?
The current macroeconomic environment is characterized by a mix of contradictory economic data, with GDP growth remaining steady at 2.5 per cent and composite PMIs in positive territory.
Conclusion
In conclusion, gold’s impressive run in August is driven by a combination of factors, including a weakening US dollar, decreased Treasury yields, and India’s reduced import duties on gold. As the global economy continues to navigate uncertainty, investors should remain vigilant and consider diversifying their portfolios with safe-haven assets like gold.
